Today, technology is redefining our lives with certain key consumer expectations like “instant gratification” and “mobility” forcing the disruption everywhere. While everyone embraced these changes in their own way, financial sector felt the disruptive heat via fintech’ companies to fundamentally change the way people transacted business and furthered the concept of “on-demand” services to the next level.

Originally, the term “Fintech” was applied to the back-end technological set-ups of the various (types of) financial Institutions but recently, that horizon expanded with everything ranging from mobile banking, bitcoin, digital wallets coming into its purview. Fintech companies are not stopping at technology disruptions but are moving on to include the traditional functions of lending, processing and managing money that is significantly changing the entire financial ecosystem.

With Digital & IoT moving beyond labs and enterprises to touch every facet of consumer life, it was imperative that the consumers would want to move on from decades old financial / banking structures and embrace on-demand financial mobility in their day to day lives. Traditional banking / financial institutions proved to be non-agile, bureaucratic as well as non-innovative in the age where all other sectors were transforming themselves. Fintech’ start-ups filled up this gap as the start point, something that now threatens to overtake the industry itself.

With the rise of applications like Blockchain and technologies like AI (Artificial Intelligence), machine learning and robots; the entire array of transactions, customer interactions, on-boarding or functions like preventing fraud are getting revolutionized. Not all fintech’ are expected to survive but not before changing the fundamental infrastructure or processes entirely.

Various financial institutions are tying up with technology service providers to address the issues of risk, costs and innovation though data led AI engines that can go beyond the usual chat bots to replace the front desk guy. It will be a combination of IoT, Digital, affective computing and others to lean on a path of more self-sufficient and less supervised AI that can assist more “human” like interactions and functions than machine oriented ones.

Is this disruption? Well, it certainly is because it changes the way the consumer or enterprise used to transact, interact or mitigated risk, did audit or looked at the financial value chain. More is on the way with IoT and mobile banking ecosystem getting integrated to open up more channels of banking as never thought before. For instance, Capital One teamed up with Alexa (Amazon Echo) to let customers transact using their voice and harness the power of true IoT led disruption. Another one is contactless transactions that is today through mobile phones but is possible tomorrow through other channels that we may not be perceiving today due to lack of ecosystem maturity or availability of options or simply technological limitations.

Fintech companies are usually start-ups that offer agile and efficient financial service products. Legacy / traditional players are also now acknowledging their disruptive power by either investing in these fintech, acquiring them or simply collaborating with them to benefit from nimble innovation, something that their own size and processes prohibited them from doing for years.

New infrastructure, business models and technology architectures is on the cards as the technology becomes the business platform itself. Its underlying components need to change via different consumption models to suit the likes of “intermediary less fully distributed” Blockchain or data led IoT or AI implementations as outlined above.

The mass commercialization and scaling of these fintech’ however depend on how well they can respond to regulatory compliances and security issues of today. Regulators also have a tough time ahead as most of the agility and flexibility of these innovations comes from the fact that either they don’t comply with age old regulatory and audit techniques (due to new architectures or processes etc) or simply challenge the larger supremacy of financial institutional checks and balances that have kept them in shape for decades. Blockchain for instance, relies on a distributed and immutable database that drives performance but at the same time, fundamentally changes the way audit trails and regulations could apply to financial or other transactions.

Security, on the other hand, poses a bigger risk as we aim to change the architectures and models radically to suit our growing mobile and instant needs. Fintech innovations largely call for an ecosystem play and much wider usage of third party/white label solutions that are complex and supported by global data exchanges riding on different classes and security of networks. The risk is further heightened by infinite proliferation of smart devices that opens up doors to new vulnerabilities every second.

It simply becomes a regulator’s nightmare to audit transactions or simply pick up fraud that goes digital at a much larger scale and is expected to change shape frequently. Regulatory institutions themselves are now turning to technology more than ever to identify loopholes and test scenarios at a much stringent and larger scale. They are also creating new bodies, accessing new age talent and skills to counter these challenges. This exercise does face questions like how would the legacy and modernized architectures work in parallel, how do you normalize regulations across the board where one transaction takes minutes while others take 2-3 days and comprises of different processes or simply how to sanitize disruptions and make them secure before they hit the mass market.

Financial services would be required forever (unless we turn to traditional barter system) but they will certainly not be in a shape or form in the near future as we see or experience them today. It’s simply a consumer’s delight as we experience agility and ease through this progress but a regulator’s nightmare as they aim to make it secure and navigate through the risks that it poses when it aims to sit alongside the traditional financial services. The potential however is huge but the trick remains to balance innovation with experience that can take this combination to create opportunities and benefit from a scale that was unimaginable before.